Port Cleanliness (CLH) Down 9.7% Since Last Earnings Report: Can It Rebound?

It has been about a month since Clean Harbors (CLH) last reported earnings. Shares have lost about 9.7% in that time, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Clean Harbors poised for a breakout? Before we dive into how investors and analysts have reacted as of late, let’s take a quick look at the most recent earnings report in order to get a better handle on the key drivers.

Clean Harbors beats second-quarter earnings and revenue estimates

Clean Harbors announced better-than-expected second quarter 2020 results.

Adjusted earnings per share of 52 cents exceeded the Zacks Consensus Estimate by more than 100%, but fell 21.2% year over year. Total revenues of $710 million topped consensus by 5.8% but declined 18.3% year-over-year despite solid growth in both operating segments.

Revenue by segment

Environmental services revenue of $496.91 million declined 11.8% year-over-year due to the coronavirus slowdown across multiple industries, partially offset by incineration and decontamination work.

Safety-Kleen’s revenue of $214.56 million declined 29.8% year-over-year due to a slowdown in both the industry and the Safety-Kleen Oil business.

Efficiency and profitability

Adjusted EBITDA of $135.48 million decreased 9.6% year-over-year. Adjusted EBITDA margin increased 190 basis points (bps) year-over-year to 19.1%.

Adjusted EBITDA includes $23.4 million in aid from government programs.

On a segment basis, Environmental Services adjusted EBITDA was $138.08 million, up 17.2% year-over-year. This growth was supported by cost reduction efforts, strong company facilities, emergency response revenues and two government programs that contributed $13.3 million to the segment.

Safety-Kleen’s adjusted EBITDA of $46.59 million decreased 41.4% due to lower revenues, petroleum product prices and costs related to the temporary refinery closure, partially offset by cost reduction efforts and government assistance programs.

Balance sheet and cash flow

Clean Harbors ended the second quarter of 2020 with cash and cash equivalents of $447.37 million, compared to $432.21 million at the end of the prior quarter. Inventories and deliveries were $219.81 million, up from $216.53 million in the prior-year quarter. Long-term debt was $1.63 billion, up from $1.70 billion in the prior quarter.

During the reported quarter, the company generated $139.81 million in cash from operations. In the reported quarter, the company did not repurchase any shares.

2020 Guidelines

Clean Harbors has provided its guidance for 2020. The company expects adjusted EBITDA in the range of $470-500 million. Environmental Services segment adjusted EBITDA is expected to be slightly above 2019 levels of $446 million. Safety-Kleen’s adjusted EBITDA is expected to decline nearly 20% from $282 million in 2019.

Net income is expected to be between $53 million and $84 million. Adjusted free cash flow is expected to be between $200 million and $230 million. Net cash flow from operations is expected to be between $355 million and $405 million.

How have estimates changed since then?

Over the last month, investors have witnessed an upward trend in estimate revisions. As a result of these changes, the consensus estimate moved by 11.11%.

VGM results

Currently, Clean Harbors has a great growth score of A, which is a rating with the same momentum score. Following exactly the same trajectory, the stock was rated A for value, putting it in the top 20% for this investment strategy.

Overall, the company’s Total VGM Score is A. If you’re not focused on one strategy, this score should interest you.

Perspectives

Estimates for this company generally show an upward trend, and the scale of these corrections looks promising. Notably, Clean Harbors carries a Zacks Rank #3 (Hold). We expect a linear rate of return on the stock over the next few months.

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